EMERGING MARKET ISHARES FAIL TEST OF 50-DAY LINE WHILE S&P 500 AND NASDAQ BACK OFF FROM RESISTANCE BARRIERS -- CONSUMER DISCRETIONARY SPDR STALLS AT 200-DAY LINE -- WAL MART NEARS 52-WEEK HIGH AND IS CONSUMER STAPLE LEADER
EMERGING MARKET RALLY DISAPPOINTS... Two Thursdays ago (October 6) I showed Emerging Market iShares (EEM) scoring an upside weekly reversal from important support at its mid-2010 low. I took that as one of the signs that the global selloff was putting in a fourth quarter bottom. Since then, however, the rally in the EEM has been unimpressive. Chart 2 shows the EEM backing off from initial resistance at its (blue) 50-day moving average. Chart 3 shows China iShares (FXI) doing the same. The inability of emerging markets to clear that initial resistance barrier may be contributing to some stalling in other global stock markets.
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Chart 1
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Chart 2
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Chart 3
S&P 500 STALLS AT RESISTANCE...NASDAQ PULLS BACK FROM 200-DAY LINE... With emerging markets selling off today, U.S. stock indexes are backing off from some resistance levels of their own. Chart 4 shows the S&P 500 backing off from its late August peak at the 1230 level. As I suggested on Tuesday, that would be a logical spot to expect a pullback. Chart 5 shows the Nasdaq Composite Index stalling just below its (red) 200-day line and unable to hold its recent move above its mid-September peak. That also suggest that profit-taking is emerging in the technology sector which has helped lead the stock market rally.
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Chart 4
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Chart 5
CONSUMER DISCRETIONARY SPDR WEAKENS... I also showed the Consumer Discretionary SPDR (XLY) having exceeded its September peak and 200-day average. Unfortunately, it's having a hard time holding that upside breakout. Chart 6 shows the XLY falling back below both levels today. That also suggests that a pullback is probably starting in that leading sector and the market as a whole. While economically-sensitive discretionary stocks are pulling back, another consumer group is gaining ground. That's the more defensive consumer staples sector.
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Chart 6
CONSUMER STAPLES STILL SHOW RELATIVE STRENGTH ... Consumer staple stocks are still showing decent chart action. Chart 7 shows the Consumer Staples SPDR (XLP) trading near a three-month high today while the rest of the market is sagging. The chart, however, also shows the XLP testing a resistance line drawn over its May/July highs. Its relative strength line (below chart) is starting to bounce again after slipping a bit during the recent market rally. That suggests that defensive-minded investors are still skeptical about the staying power of the recent market rebound.
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Chart 7
WALMART NEARS 52-WEEK HIGH... While most of today's staple leaders are in the tobacco group, a number of other stocks in that defensive sector have done well over the last month. The list includes Campbell Soup, Conagra, Costco, Tyson, and Whole Foods. The one that really caught my eye, however, is Wal Mart (WMT) which also happens to be the most heavily-weighted stock in the XLP. The daily bars in Chart 8 show Wal Mart having risen above a resisistance line drawn over its January/May peaks and in the process of testing its January intra-day high at 56.71. Although the stock does look over-extended over the short-run, its rising relative strength line (below chart) has been rising since August when the rest of the market started to weaken. That's usually what happens with this stock. The weekly bars in Chart 9 show WMT moving close to a new 52-week high which would put the stock at the highest level since 2008. The solid line is the stock's relative strength line and shows that Wal Mart does better during periods of market weakness (2008) and lags behind when the market is strong (since spring 2009). Its relative strength line has turned up for the first time since the last bull market began. The monthly bars in Chart 10 show the stock in a decade-long trading range between 40 and 60. It's moving closer to the top of that range. I don't know if the stock is ready to break out of that sideways pattern. But it would really be something if it did.
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Chart 8
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Chart 9
